This report shows public data only. Is this your organisation? If so, login here to view your full report.

First Sentier Investors (including First State Investments)

PRI reporting framework 2020

Export Public Responses
Pdf-img

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (A) Implementation: Screening

(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

Group wide exclusionary screens include cluster munition and landmine manufacturers and tobacco product manufacturers. We also exclude sanctioned and very high risk countries, companies domiciled in those countries and individuals.

04.3. Additional information. [Optional]

We apply negative screening at a firm level, which applies within all fixed income portfolios.

Group wide exclusionary screens include cluster munition and landmine manufacturers and as of 2019, companies that produce cigarettes and tobacco products. We also exclude sanctioned and very high risk countries, companies domiciled in those countries and individuals.

For sanctioned and high risk countries we enforce country level restrictions based on the constituents of the Australian Department of Foreign Affairs and Trade (DFAT) Sanctioned Countries List and similar lists issued by Governments in other jurisdictions where our funds are domiciled. No investment is possible in companies domiciled in any country on the DFAT list without clearance from Investment Compliance personnel as the system controls do not allow it.

In addition our controls include screens for any potential investment from a country deemed to be 'very high risk' in relation to politically exposed persons, sanctions and ultimate beneficial ownership controls. The constituents on each system are regularly reviewed and updated.

Please also see the following link for our policy on cluster munitions and anti-personnel mines:

 https://www.firststateinvestments.com/about-us-files/140107-CFSGAM-FSI-Policy-on-cluster-munitions.pdf

Please see the following link for our policy on Tobacco Exclusion:

 https://www.firstsentierinvestors.com.au/content/dam/cfsgam/about-us-files/tobacco-exclusion-policy.pdf


FI 05. Examples of ESG factors in screening process

05.1. Provide examples of how ESG factors are included in your screening criteria.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Cluster Munitions & Land Mine manufacturers. We fully support the conventions relating to the manufacture of anti-personnel mines (Ottawa Convention) and cluster munitions (Oslo Convention). The manufacture and use of such weapons undermines the basic fundamental principles of human rights. Our broad based corporate credit universe includes corporate issuers in investment grade and high yield across developed and emerging markets. The names included for exclusion currently are: Hanwha Corporation – South Korea, Poongsan Corporation – South Korea, Elbit Systems – Israel, Anhui GreatWall Military Industry Co Ltd – China, and LIG Nex1 Co Ltd – South Korea. Although these corporates are not typical issuers in our universes, our fixed income teams have worked with investment compliance to code these companies into our pre-trade compliance system to ensure they can not be purchased in portfolios.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Tobacco manufacturers: We had always had a view that tobacco was a high ESG risk sector although as a debt investor we often felt we were compensated fairly for this risk in the short to medium term life of the securities held. However, as a firm we had made a decision in May 2019, in collaboration with the investment teams including fixed income, to exclude tobacco from our investment universe despite not being required to by clients, and indeed some clients challenged this decision. A name we have historically covered included British American Tobacco which is a large issuer in the investment grade corporate space. Although we believe this company has strong financials and provides diversification in a broader portfolio while simultaneously offering attractive relative value as a BBB rated entity, we have both divested of previous holding in funds and now screen this issuer completely from our opportunity set.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Tobacco manufacturers: We had always had a view that tobacco was a high ESG risk sector although as a debt investor we often felt we were compensated fairly for this risk in the short to medium term life of the securities held. However, as a firm we had made a decision in May 2019, in collaboration with the investment teams including fixed income, to exclude tobacco from our investment universe despite not being required to by clients, and indeed some clients challenged this decision. A name we have historically covered included Altria which is a large issuer in the investment grade corporate space. Recently there have been discussions around a merger with competitor Philip Morris which we believe would be positive for the credit profile of the combined entity. However, we previously divested of this name and do not deem either to be investible given the screen in place.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Sanctioned countries & individuals

We do not invest in sanctioned countries as well as companies domiciled in those countries. These countries currently include Cuba, Iran and North & South Sudan (none of which are actually deemed investible in the emerging market space).

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Sanctioned countries & individuals

In addition to sanction country controls, we observe the US Russian/Ukraine related issuers sanctions; limiting investments in Six major Russian banks designated under Directive 1 (Bank of Moscow, Gazprombank, Russian Agricultural Bank, Sberbank, VEB and VTB Bank), and four major Russian energy companies under Directive 2 (Novatek, Rosneft, Gazprom Neft and Transneft). While these issuers are represented in EMD indices, we screen them out of our universe due to these ongoing sanctions.

05.2. Additional information.

As noted in FI 04 these are firm wide exclusions.


FI 06. Screening - ensuring criteria are met

06.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Checks
Negative/exclusionary screening

06.2. Additional information. [Optional]

Portfolio managers are well aware of the firm wide policy. In looking at investing in a new issuer they conduct preliminary screens including the business profile and domicile of the company to ensure that the company passes our tobacco, munitions and sanctions exclusions polices. Portfolio managers also utilise the credit research team and seek preliminary internal credit ratings which will capture any issuers that may potentially be missed in the initial PM screen.

Furthermore, group wide rules and exclusions are programmed into pre-trade compliance systems as general trading rules which would prevent the acquisition of such securities. As a final check, post trade compliance checks are also conducted daily.

The criteria and list of excluded issuers are managed by the EMEA and Australasian Compliance teams, and reviewed annually by the Head of Responsible Investment.


Top